STILL AN EXCELLENT LONG-TERM STRATEGY
In general, three types of real estate investment are worth consideration.
- Residential property: Most would agree that in the long term renting merely benefits the landlord and not you. When it comes time to retire, we all want to have a roof over our heads that we actually own. This provides peace of mind and security for you and your family.
- Apartments to generate income and/or build equity: The idea is to invest in an apartment complex comprising some 10 to 20 individual apartments which are rented out. The total rental income should create enough cash to pay off the mortgage and costs while generating extra cash flow for you of 5-8% p.a. While receiving a monthly income from this extra cash flow, you pay off your debt in order to build more equity in your apartment complex which includes the land it stands on. The land value alone is some 70% to 80% of the total property value.
- Land development: This refers to land improvements (rezoning) whereby non-commercial property is sold for commercial or residential purposes. After the property is rezoned a developer buys it and develops it with residential housing or office buildings such as Roppongi Hills, built just after the Japanese bubble burst in the mid-1990s. The land under Roppongi Hills is worth more now than it was then, despite the overall drop in land values in Tokyo.
In general, real estate should only be considered as a mid-to-long term investment. When investing in either a home or an apartment complex, it is best to use a yen-based loan from a Japanese bank to pay off your equity over time. You can take advantage of low interest rates and maintain control of your capital by using the bank’s money to help you build up your wealth. It is best to use apartment complexes and land developments as alternatives to investing in global stock/bond markets. Both continued to produce positive returns even during the SUBPRIME MARKET CRASH of 2008. Why? Renters always need to pay rent to their landlords, and new rezoning/land improvement near a major city always increases land values.